Team Beats Collusion





Date : Friday, 6 April 2012

Hour : 15:00

Place: Economics Department Faculty Lounge, Natuk Birkan Building

This paper analyzes optimal contracts in a linear hidden-action model with
normally distributed returns possessing two moments that are governed
jointly by two agents, who can observe each others’ effort levels and draft
enforceable side-contracts on chosen effort levels and realized returns.
After showing that standard constraints, resulting in incentive-contracts,
may fail to ensure implementability, we examine (centralized)
collusion-proof contracts and (decentralized) team-contracts. We prove that
optimal team-contracts provide the highest implementable returns to the
principal. In other words, the principal may restrict attention to
outsourcing/decentralization without any loss of generality. Moreover,
situations in which incentive-contracts are collusion- proof, thus
implementable, are fully characterized. (joint with Mehmet Barlo)

Boğaziçi Üniversitesi

Ekonomi Bölümü

Natuk Birkan Binası K.2

Tel: 0212 359 6505

Faks: 0212 287 2453


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